The United States Supreme Court’s decision in Metropolitan Life Insurance Co. v. Glenn provides an invaluable roadmap for employers, insurers, administrators and plan fiduciaries sponsoring or administering employee benefit plans regulated by the Employee Retirement Income Security Act (ERISA) to help position plan administration decisions made by fiduciaries that also are responsible for or are employed by the employer or insurer liable for funding the plan or with another financial interest impacted by the claims decision.

The June 19, 2008 Glenn decision is the latest in a series of regulatory and judicial developments that courts use to decide whether to overturn or uphold claims decisions made under ERISA-governed health, life, disability, retirement, severance and other employee benefit plans. Plan sponsors, administrators and service providers that understand and use these rules effectively can improve the likelihood that courts will uphold claims decisions and enhance the ability to cost effectively defend claims against litigation. Employers, insurers, employee benefit plans, and others interested in learning more about Glenn and other ERISA guidance and strategies to use this guidance to strengthen the defensibility of plan administration decisions are invited to register to participate in an “ERISA Claims & Appeals Boot Camp” on August 1, 2008.

The Glenn Decision

In its June 19, 2008 Glenn decision, the Supreme Court addressed whether and how the existence of a responsibility to pay plan costs or other financial interest in the outcome of a claims decision by the administrator can impact a court’s review of ERISA claims decisions. In Glenn, the plaintiff argued the court should disregard a grant of discretion to the administrator included in the plan documents and instead review the claim for benefits de novo with no deference to the administrator’s prior claim determinations because the administrator also was the insurer responsible for funding the payment of the claims. Since the degree of deference a court affords to an administrator’s decision-making often substantially impacts the burden an administrator must meet and the evidence it must produce to defend its decision, the decision of a court whether to defer to an administrator’s benefit decision frequently plays a critical role in the outcome and cost of benefit litigation.

Prior to Glenn, the Supreme Court in Firestone Tire & Rubber Co. v. Bruch, ruled that courts must review a plan administrator or other fiduciary’s denial of plan benefits under a de novo standard unless the plan grants the fiduciary discretionary authority. In contrast, where the benefit plan gives the fiduciary discretionary authority, the Supreme Court ruled that the reviewing court generally should defer to the fiduciary’s decision the absence of evidence that the administrator’s engaged in an abuse of discretion. If the evidence reflects that the plan administrator’s decision may have been improperly influenced by conflict of interest, contrary to the law or plan terms, or arbitrary, however, the Supreme Court ruled that less deference might be appropriate. With regard to a conflict of interest, the Supreme Court in Firestone directed that reviewing courts should weigh the conflict as a “factor in determining whether there is an abuse of discretion” that justified less deference to the administrator’s decision.

After the Firestone decision, many but not all plan sponsors took steps to add discretionary grant for administrators to their plan documents. Meanwhile, many participants and beneficiaries sought to mitigate the impact of these discretionary grants where the administrator was or was employed by the insurer or employer responsible for providing funds to pay claims by arguing that this dual involvement created a conflict of interest. In Glenn, the Supreme Court addressed whether this dual involvement in benefit administration and plan funding by an administrator constitutes a conflict of interest that requires or justifies the reviewing court’s disregard of an otherwise applicable discretionary grant of authority in the plan document.

In Glenn, the Supreme Court ruled:

Where the plan administrator making the claims decision also funds claims paid under the plan or otherwise has a financial interest in the outcome of the claims decision, the administrator acts under a conflict of interest that under certain circumstances may justify less deferential judicial review of its claims decisions than otherwise would apply in the absence of this conflict of interest;

The mere existence of this conflict of interest does not automatically disqualify the plan administrator's decision for any deference by a reviewing court. Rather, the existence of this conflict of interest is merely a factor that the reviewing court may consider when deciding whether less deferential review is justified; and

The extent to which the conflict of interest justifies a reviewing court’s closer scrutiny of the administrator’s claims decision depends upon the extent to which the facts and circumstances reflect that the conflict may have caused the administrator to abuse its discretionary authority.

The Glenn decision also provides insights about types of evidence that might influence the court’s decision about whether the conflict of interest merits greater scrutiny of the decision by the court. The Court’s decision makes clear that depending on the evidence produced, a court reviewing the plan administrator's decision appropriately can decide the conflict of interest warrants no special scrutiny or significantly greater scrutiny.

Core Lessons From Glenn & Other Existing Guidance

In addition to guidance provided by Glenn, the sustainability of a claim decision also is impacted Labor Department regulations interpreting ERISA’s reasonable claims and appeals procedures requirements, ERISA’s fiduciary responsibility standards, and a plethora of other judicial and regulatory guidance. Taken together, the Supreme Court’s decisions in Glenn and Firestone and other judicial and regulatory guidance provide critical insight to employee benefit plan sponsors, their fiduciaries and service providers, and others about processes and plan language that can help make claims decisions more defensible before the courts. While this guidance continues to evolve, Glenn and the other existing guidance outline certain basic practices that plan sponsors and administrators should follow if they are concerned about positioning plan administration decisions to hold up in court. Some of these include:

Ensure that plan documents incorporate the grants of discretion that the Supreme Court previously ruled in Firestone v. Bruch must exist before the courts can consider applying deferential, rather than de novo review to a plan administrator’s decisions whenever possible;

If a fiduciary intends to allow a service provider or other party to perform all or a portion of its fiduciary responsibilities, ensure that this delegation is accomplished through appropriate documentation that both delegates the fiduciary role and applicable fiduciary discretion in accordance with applicable plan terms and procedures;

Draft plan documents, summary plan descriptions and other plan communications carefully to reduce the need for the plan administrator to exercise discretion when making plan administration decisions;

Ensure that plan claims and appeals processes, communications, and documentation are updated and administered to comply with currently applicable Labor Department claims, appeals, and other regulations, many of which have been updated in recent years;

Appoint an individual, service provider or committee to act as the plan administrator that is insulated from involvement in plan funding related activities of the nature that might create a conflict of interest;

Where circumstances prevent the redesign of processes to eliminate allegations of a conflict of interest, adopt and make documented use of processes and procedures to ensure the administrator can present the necessary evidence to rebut allegations that the conflict of interest inappropriately impacted its decision-making; and

Ensure that documentation, processes and procedures, notifications, and communications are appropriately designed and administered to document that the administrator made its decision prudently in accordance with the plan terms taking into account applicable law, without improper prejudice or undue influence as a result of its financial interest in the plan or other conflict of interest.

Glenn, Firestone and other existing court decisions document that the fulfillment of these conditions is key to a court’s decision to uphold a plan administrator or other fiduciary’s benefit decision and that the reduced evidentiary burden applicable where discretionary review applies also minimizes defense costs. A review of this precedent provides strong evidence of the potential value for employee benefit plans, their sponsors, fiduciaries, and liability insurers of evaluating employee benefit plan documents and procedures for opportunities to strengthen these documents and procedures.

If you need assistance reviewing or defending a claims or appeals determination under an ERISA plan, reviewing and updating plan terms and processes in response to Glenn and other current guidance, or addressing other employee benefit or employment related questions or concerns, please contact Cynthia Marcotte Stamer at 972.419.7188 or via e-mail at [email protected]

Cynthia Stamer

Cynthia Marcotte Stamer, is nationally and internationally recognized for her work assisting businesses, governments, and other entities to develop creative strategies for dealing with employee benefit and related human resources, insurance, health care and finance concerns. Ms. Stamer helps businesses design, administer and defend cost-effective employee benefit other human resources programs, policies and procedures to meet their budgetary and other business objectives.